In bankruptcy the Secured Party has a claim based upon the amount of its debt. Secured claims are paid first, unsecured claims are last. In between there are tax claims, cost of administering the Bankruptcy (i.e., attorney’s fees), salaries, employee benefits, etc. If the value of the collateral exceeds what is owed the Bank the Bank is oversecured and is entitled to post-petition interest. If the value of the Bank’s collateral does not exceed the amount of the debt, the Bank is undersecured and has a secured claim up to the value of the collateral; and an unsecured claim for the amount by which the claim exceeds the value of the collateral. An allowed secured claim is deemed secured only to the extent of the value of the collateral. Any remaining amount is deemed an unsecured allowed claim.
EXAMPLE: Creditor has a $2,000 claim secured by property of the Debtor worth $500. Creditor has an allowed secured claim of $500 and an allowed unsecured claim of $1,500.